Moving Beyond the Slow, Hierarchical Organization

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0:32HBR IdeaCast Host:I'm Adi Ignatius. I'm Alison Beard, and this is the HBR IdeaCast.

0:44HBR IdeaCast Host:Alison, there has been a lot of talk about whether our institutions are up to today's challenges. So I'm talking about schools, I'm talking about companies, I'm talking about other organizations that really continue to be run essentially as they were 100 years ago when our economic and social needs were very, very different. I'm particularly interested in how companies are structured and whether they're set up to succeed in today's, you know, really fast-moving business environment. Yeah, and I think this is a problem that we've been trying to solve for years, right? Reorganizing to be more agile, more experimental, and more digital.

1:17HBR IdeaCast Host:That's definitely happened. Our guest today, Jana Werner, argues that most companies still retain an organizational structure that, yeah, may have evolved, but is still too rigid to make it in this world. And the authors use a metaphor that the ideal modern organization should be like an octopus with tentacles that work separately but also together with distributed intelligence, sensory awareness, and adaptability. I like that. Octopuses, I've been told it's not octopi, seem to be having a moment, you know, in film and TV and books. They do have big heads, but I guess the legs are the real engines powering them through the ocean.

1:55HBR IdeaCast Host:So is this about finally finding a way for companies to reduce hierarchy once and for all and create autonomous but still connected teams like those legs? So it might be. It's definitely about breaking down bureaucracy and it's about an obsessive focus on what really matters, which is customer needs. So that's the advice of Jana Werner, executive in residence of Enterprise Strategy at Amazon Web Services and co-author with Phil Lebrun of the new HBR article, Become an Octopus Organization, as well as the new book, The Octopus Organization, A Guide to Thriving in a World of Continuous Transformation.

2:32HBR IdeaCast Host:So here's my conversation with Jana.

2:38HBR IdeaCast Host:I'd like your analysis of what's wrong with corporations today. So let's start with that. What is wrong with our organizations?

2:46Jana Werner:My co-author, Philip Rönn, and I found working in large organizations, helping to advance and transform them, and now working with a lot of large companies in our day jobs currently, that they essentially still are factories. They're based on the models of Frederick Taylor and co, a bit of a rusting construct built on standardization, specialization, control, individual performance focus, compliance, essentially predictable outcomes and the idea of creating efficiency was a way to operate but these models no longer work they're built on a foundation of permission permission to innovate to speak up and they're designed to de-risk and be efficient yes we are trying to evolve there's a lot of great new practice and and practical examples out there um silicon valley for example and some organizations have evolved like this, the Apples, of course, of the world and Amazons of the world.

3:47Jana Werner:But many of the larger traditional organizations I work with, the majority actually are finding it hard and they do it in pockets, but not to the point that we would like to inspire organizations to do.

3:58HBR IdeaCast Host:It sounds like companies think they have made progress, think they have, you know, we're adopting the Silicon Valley style, but your point is it's just sort of tacked on to these traditional structures that need a pretty dramatic change. So your idea is to inspire companies to pursue a new approach, which you call Octopus, to become an octopus organization. Talk about what is an octopus organization.

4:23Jana Werner:We start from the point of view that how we operate and how we engage and what companies and customers need today has changed so much. Today's success depends much more on building genuine trust with customers, with the employees you work with, with a broader set of stakeholders as well. Work is so much less transactional. It's cross-disciplined. New technology comes up. So the idea for us is to say you need to move a bit away from command and control because you can't command and control your way to exceptional outcomes through learning new ways of operating a new technology. So it's about creating connection, about creating agency more than this permission setting culture we currently have.

5:07Jana Werner:And then designing companies that can thrive in the current complexity. So a bit from the metal tin man suit to a living organism. And the octopus was one that came to mind for many reasons.

5:18HBR IdeaCast Host:I recently interviewed the global managing partner McKinsey.

5:21Jana Werner:Oh, yeah.

5:22HBR IdeaCast Host:Who said in his conversations with CEOs all over the world, I'm paraphrasing, But basically, no one is happy with their organizational structure. They feel that it's too complicated. It's too matrix. True. People can't figure out how to get anything done. Now, you're sort of talking about a reorganization, which is kind of daunting for companies that are already feeling that they don't have a grip on, you know, the organization now. But in what way will this simplify or lubricate kind of the business of innovation within companies?

5:53Jana Werner:I would probably not so much call it a structure. I would call it a mindset, a way of thinking and a way of operating, of living differently. We've seen a lot of restructures and most of them cause more challenge or often scarring than they cause an actual improvement of productivity and comfort for people to work in it. The idea is more about how can you push decisions into the organization to people who are close to the customer, who are close to the problem. It's about all these amazing people that we hire and then actually tell them what to do instead of tapping into their knowledge and their experience.

6:32Jana Werner:How can you switch them all on so they all come every day to work to say, what are the problems worth solving? How can I solve them in ever better ways? And how can I help advance and adapt my organization so it stays lean? We fight against this natural buildup of bureaucracy, of layers of extra things. and we keep focusing on the customers, not on inward things. And we keep thinking about how to innovate for those customers.

6:58HBR IdeaCast Host:I think there are probably a lot of companies that think, yes, we are customer-centric because we say it every day, right? So how do you get from mouthing the words, we're customer-centric to actually being that?

7:09Jana Werner:I love that question because I work with organizations that say, we put the customer at the heart of everything we do. But then they, for example, you look at their budget and 80 % of their budget is actually spent on what we call keeping the lights on, on infrastructure, on internal change. So their money doesn't talk the way that they think they are working. The switch is quite challenging and the organizations that do that well have their leaders engage with customers. So instead of thinking they have used proxies, they use proxy metrics like net promoter scores instead of using opinions of I have done this job for 30 years, I know what my customers want.

7:48Jana Werner:they still go out and speak to customers. We've spoken to Indra Nui. She was the former CEO of PepsiCo and is now an Amazon board member. She used to ride Pepsi delivery trucks and go in restaurants to see what was going on. So leaders stay close. They do call listening. They understand they need to dive deeper into the data they get from customers and not believe the abstract proxy metrics like net promoter scores. They hear anecdotes and they follow those anecdotes to figure out what is not quite right and how do we serve customers better. And they push decisions of how to serve customers and solve problems to those people in their orgs that are close to them.

8:26HBR IdeaCast Host:Is that the key? I mean, the key to this can't be to ride a delivery truck once in a while if you're the CEO, right? But is it what you just said about empowering the frontline people to listen and to respond to customer needs?

8:40Jana Werner:Exactly. And that means giving them the opportunity to think about how they solve problems for their customers and not pushing those decisions up the chain and enabling them, giving them the technology. We talk a lot about AI now instead of clamping down on it, giving them the technology to solve problems in new and different ways for their customers, giving them the innovation freedom. Last week, I visited the transformation team of a car manufacturer, a struggling one, and they're under so much pressure that all innovation ideas need big business cases, big proposals, massive behind the scenes arguing and negotiating that people get buy-in.

9:21Jana Werner:And then these innovation proposals get so big and to the board that they have to be signed off. And when the board has signed off, of course, everyone has to jump at it because the board has given attention. So there's no more room to innovate small and do things. And they said we used to go down to the basement, the engineers, and work on new cars. None of this exists anymore. And that's the opposite of what's needed.

9:43HBR IdeaCast Host:So let's talk about the octopus metaphor. So, you know, the idea of distributed intelligence, sensory awareness, adaptability. You know, what was the moment, the aha moment maybe, that convinced you that, you know, the octopus is the right metaphor, the right model for a modern business?

10:00Jana Werner:I saw an amazing movie called My Octopus Teacher. Most people probably know it. And it got me curious about the creature. And I studied more about it. And I learned how absurdly sophisticated their ability is to adapt through things like shape-shifting. They can change the texture of their skin. They have an unbelievable capacity to learn. They can even alter their RNA. They can create new molecules depending if they're in hot or cold water. And they do that within a day so they can adapt to the environment. The whole idea was, can we give people a simple way of looking at it to say, this is what we're looking to do.

10:40Jana Werner:And most importantly, they have distributed intelligence. My 10-year-old daughter told me they have neural clusters in each of their arms. So they don't just have a central brain, but they have decentralized intelligence. So the idea is, how can we give people an imagery and a metaphor to think differently about their organization? And this creature is just it.

11:01HBR IdeaCast Host:Yeah, okay, so to stick with that. So then, you know, you have the tentacles, I hope I have the right word, that are working separately, but obviously are also working together. Yes. So let's talk about that within companies. I've heard professors say, yes, yes, yes, we hate silos, but silos are actually useful for getting things done. How do you balance the fact that we need things to work independently while also contributing to this sort of fuller, wholer organization?

11:31Jana Werner:I think this is an ever-questioned problem, the idea of how do you balance autonomy with alignment. The idea is to think about leaders providing the clarity, the context of what the challenges are, what are the problems worth solving, what are the few things that are important to enable people to then go and solve for those things. and that creates a mix of having context having clarity of what the few priorities are and giving people the freedom and the space to experiment in that space and in the companies that do this well they actually accept that there will be a bit of duplication and there will be a bit of messiness but we rather accept this for the advanced gain of more innovation and more speed and more customer centricity.

12:23Jana Werner:But it is always a trade-off. And the silo problem for me is much more pronounced in large and traditional organizations where leaders sit in an executive team and they're not a leadership team. They're just a team of leaders who come together. And they, for example, decide in an executive team something like, we want to become more customer centric. And then the CFO goes away and says, okay, we need to get more efficient so we can cut prices. The CMO goes away and says, we need a new customer experience. The CIO goes away and says, we have to change our technology like this and that. So the people who sit together in the executive team are more connected to their silos and try and solve problems in their silos and trying to connect an outcome as a leadership team and then horizontally connect and develop these outcomes.

13:12HBR IdeaCast Host:So at this stage, would you describe Amazon as a successful example of an Octos company? I mean, I think of them as, you know, since Jeff Bezos' creation, you know, we are customer obsessed. I think under Andy Jassy, they're trying to cut out a lot of the bureaucracy, a lot of the stuff that slows them down in the middle. Have they become what you're talking about? Are they on the path to becoming that? Can anybody ever become the ideal that you're talking about?

13:39Jana Werner:I think it's good to have an ideal. Many companies have mixed some tentacles and still some old tin man rusty armors. Some have more of an octopus, some have less. And I think the more successful companies have more of these traits. And I think Amazon has many of the qualities and in many parts of the organization acts in this way, in this metaphor. So we have principles that we follow that lay out values. We try to push independent product teams. We call them two pizza teams who are as broadly autonomous as possible and can be close to the customers, can make their own decisions like little startups.

14:19Jana Werner:Of course, in every organization, there's a risk that the company calcifies and goes into the anti-patterns like pushing decisions up the hierarchy and making decisions too slowly starting to become involved in their internal proxy processes rather than thinking about customers that risk exists. We call this a shift from day one culture being like a startup to a day two culture, which is this more rigid, slower organization that's not an octopus. And we keep consciously fighting against this day two culture because it's not something you change once. You have to continuously make sure you go back to this octopus-like way of being.

14:57HBR IdeaCast Host:On the question of innovation, a lot of companies pursue a sort of dual transformation approach. I mean, that's been true at Harvard Business Publishing as well. We published a book by Scott Anthony on this where your next generation innovation, inventing the future, is separated from innovation at the core. It sounds like you're suggesting a different approach to innovation. Is that right?

15:22Jana Werner:Yeah, we see a lot of organizations that do innovation labs because they feel they're struggling to truly drive innovation through the DNA of the organization. But that puts innovation to the side. It gives the ability and the resources to few people. And those few people are often not the broad organization that is actually close to the customers and to the problems to solve. And that's risky because a lot of this innovation then doesn't reach the customer. It stays proof of concepts and it's hard to bring these abstracts, ivory tower and removed innovations into the organization to stick and scale.

15:58Jana Werner:So the recommendation we have is actually giving broad access to innovation mechanisms, ways of working and enabling organizations across the piece to innovate. For example, Amazon Prime, the idea was created by someone who was filling spreadsheets about delivery and about how to start thinking about connecting and bundling offerings. The idea is push to anyone in the organization rather than just a few who think they understand how to innovate. Because innovation comes from experimenting, from being close to the problems, from trying things and from having ideas.

16:36HBR IdeaCast Host:You know, what are the structural cultural signals that leadership can try to create that tells employees that innovation is genuinely that sort of daily obsessive behavior and not, as you say, a kind of isolated or special event or isolated department? it?

16:55Jana Werner:It's first of all giving them the mechanism. So for example at Amazon we have a method called working backwards and the broader organization gets the tools to do this and gets the opportunity to create and write ideas for innovation and share them. We expect this in our annual performance reviews we look at what have you done to look to innovate to simplify. We share what we mean by innovation. This is not, you don't have to invent the x-ray and you don't have to invent a new tool for agentic AI. Innovation can be small eye innovation. So little things, creating some efficiency, fixing small problems so that people get out of this fear that they are paralyzing idea.

17:37Jana Werner:They have to do something big. And we also provide the freedom to say, when you come up with something, write your idea down, take it through the organization. You don't just have to go up to your boss and ask for permission. So the idea is give principles where people can realize this is part of my daily job, put it into the performance reviews, give them the tools, and then celebrate when people come up with innovations, tell the stories, share what they have created so that others realize this is real. We're not just pretending to say this, we're actually wanting you to do this.

18:11HBR IdeaCast Host:So there are innovations that are being created. You also write about how, there are these anti-patterns that need to be done away with or improved. Talk about one or two of them, these sort of anti-patterns that are blocking this transformation that you're describing.

18:29Jana Werner:In a lot of companies, we start to do a piece of work and we don't really think about what is the problem we're trying to solve. We get all this money, we create a big project, and then we go we start and we try to show progress in this project. The tendency is then to keep developing, keep working on it, because we want to, first of all, have a bit of immediate gratification that we're making progress on the project. We want to showcase to our leaders that we're making progress. But actually, when we spoke in our interview for the book to Astro Teller, who's the CEO of Alphabet X's Moonshot Labs, he gave us the metaphor of the monkey and the pedestal.